As part of its 2018 budget (Budget), the Ontario government announced that it plans to propose new tools to enhance and expand the securities enforcement activities of the Ontario Securities Commission (OSC), including in regard to the criminal prosecution of securities fraud. The Budget does not include details of how or when these proposals will be implemented, but the announcements provide valuable insight into the current government’s securities enforcement priorities.

Potentially the most significant announcement in the Budget is the government’s encouragement of cooperation between the OSC and the Ministry of the Attorney General (MAG) to investigate and prosecute criminal securities fraud. As a component of this initiative, the OSC and MAG will use Ontario’s new Serious Fraud Office (SFO), which was created in late 2017 with an initial focus on auto insurance fraud, to investigate and prosecute criminal securities fraud. The Budget does not include any formal policy or legislative initiatives to implement this proposal, but it may be seen as a response to recent media commentary suggesting that the prosecution of criminal securities fraud cases in Ontario needs to be more effective.

In terms of specific legislative changes, the Budget proposes that new offences be added to the Securities Act (Ontario) (Act) for breach of an undertaking and for obstruction of an investigation, which will bring Ontario’s securities regulatory regime into line with the United States. The Budget also proposes streamlining the administrative penalty process for first-time violations of various requirements under the Act and streamlining the information-sharing processes in enforcement proceedings. Such changes, if implemented, would be consistent with the OSC’s current focus on national and international cooperation in investigations.

More generally, the Budget proposes that the OSC be given the authority to make automatic and non-automatic reciprocal orders on key orders issued for certain court convictions or by another Canadian securities regulator. The types of orders that the government has in mind are not specified, but it appears that the general intention of this proposal is to streamline the uniform enforcement of sanctions across the country. Depending on how it is implemented, this proposal could result in the OSC automatically enforcing sanctions imposed by other regulators, including the Investment Industry Regulatory Organization of Canada (IIROC). The proposal may be a response to the mounting totals of unpaid securities-related penalties and fines across Canada.

The Budget further states that the government will work with the OSC to strengthen the framework for securing compensation for investors who suffer financial losses due to the acts or omissions of registered firms, and will seek to ensure a “fair and efficient” complaint resolution system for investors. It is unclear how these initiatives are intended to relate to existing regulatory dispute resolution systems, such as those provided by the Ombudsman for Banking Services and Investments (OBSI) or IIROC’s arbitration system. This initiative appears to reflect an intention that the OSC provide investors with more options for obtaining compensation without resorting to the courts.

Lastly, the Budget contains a proposal to establish a regulatory regime for financial benchmark administrators, contributors and users. The aim of this proposal is to reduce the risk of manipulation of financial benchmarks and align with international requirements. The government expects that this new initiative will improve protection for investors and capital markets against misconduct. Benchmark risk has been a significant international concern for some time.

The runway for implementation of the Budget proposals relating to securities enforcement is likely to be protracted given the upcoming provincial election. Specific legislative and policy changes are also likely to be the subject of stakeholder comments. We will continue to monitor the status of these proposals.